Trump's tax plan has a hidden surprise for Social Security
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While Donald TrumpDonald John Trump Trump responds to calls to tear down monuments with creation of 'National Garden' of statues Trump: Children are taught in school to 'hate their own country' Trump accuses those tearing down statues of wanting to 'overthrow the American Revolution' MORE has a general commitment to keep his hands off of Social Security, one of his major economic proposals would leave an indelible impression upon the system that few are discussing. 


Trump's campaign theme focused on tax reductions for middle class Americans. His goal includes removing nearly 75 million households – over 50% – from the income tax rolls. To accomplish his goal his plan creates a zero income tax rate on singles earning less than $25,000 and couples earning less than $50,000. 

This plan is great for middle income taxpayers, none more so than seniors who would enjoy significant relief from the taxation of their Social Security benefits. This income faces some of the highest marginal tax rates in the entire tax code.

For a dollar of income, the tax formula can expose a portion of the Social Security benefits to taxes. It is entirely possible that earning a dollar will create a tax based on $1.85 of income. In the worst case, the marginal tax rate is 46 percent.

While current seniors would applaud this economic policy, it would sharply curb the revenue base of the program. Tax revenue on Social Security benefits collected by the Treasury Department is dedicated to Social Security and other social insurance programs. In 2015 alone, the Internal Revenue Service clawed back $31.6 billion in benefits.

Virtually all experts agree that this revenue stream will play a growing role in the alleviating the crisis building in the program. The Congressional Budget Office reports that the taxation of benefits reclaimed 6.5 percent of all benefits paid in 2014. They expect that figure to rise to 9 percent over time.

The reason for rise is simple. More people are affected by these taxes, and the rising level of benefits exposed to taxation, mean more people are paying more in taxes. The Trustees have cited the strength of this revenue as a reason for the improving their outlook for the program in both 2014 and 2015.

Here is where Trump’s proposal pushes the program to the edge of the Rubicon. It is very difficult to replace this revenue without jeopardizing the system’s independence. Today the system enjoys a certain amount of budgetary freedom because it can be argued that the program is 100 percent self funded by the payroll tax.

It is safe to assume that Trump’s plan will replace the lost revenue with cash from the general fund. His plan refers to paying for his tax cut with changes to corporate taxes.

If so, the program will have crossed the Rubicon. Trump’s solution means that the program is no longer self sufficient, and supporters would be unable to assert that the program does not contribute to the deficit. Without that buffer, the benefit levels of Social Security would become open-game in budget negotiations.

In that environment, benefits level would draw intense scrutiny because Social Security is not equal nor universally available to all Americans. According to Andrew Biggs, roughly one-fifth of our poorest seniors are not even eligible for benefits. Wives collect half of what husbands collect. These features are easily justified when the beneficiaries are simply collecting upon a program for which they paid.

In terms of Social Security, Trump’s proposal is no different from a tax increase on the general public to give seniors a 6 percent increase in benefits. The highest benefit from the change would flow to seniors who live comfortably, while those retirees at the poverty line would get nothing. For example, a couple earning $50,000 a year and collecting $40,000 a year in benefits, would see a rise in buying power of nearly 30 percent.

In the end, the taxation of benefits serves as a benefit reduction, one which claws back cash from those with “substantial outside income.” It is very possible to argue for reform of these reductions, but we should have a clear view of how we will pay for the system’s current liabilities before we create even more.

Brenton Smith is the founder of “Fix Social Security Now,” which provides information on all alternatives in the public debate on Social Security through its site

The views expressed by contributors are their own and not the views of The Hill.